4 Reasons to Finance Business Jets

This year, the business aviation industry has experienced severe downdrafts as a result of the Covid-19 pandemic. On the other hand, the same forces have boosted charter flights, prompted newcomer purchases of whole and fractional aircraft shares, and highlighted the appeal of business aviation.

Similarly, the August 27 issue of JetNet iQ Pulse reported considerable untapped interest in borrowing or leasing (financing) to make aircraft purchases, stating: “Since the advent of the Covid-19 pandemic, about two-thirds of respondents with an opinion suggest that they intend to use some kind of financing to buy their next new aircraft.”

Getting a Glimpse of Today's Aircraft Finance Markets

A brief overview of the two most common forms of aircraft financing, “true leases” and secured loans, will help explain why people are interested in financing jet aircraft in a market where cash transactions are the norm.

A true aircraft lease is when an owner/lessor transfers the right to ownership and use of an aircraft to a lessee for a set period of time in exchange for rent and other value. In a true contract, the lessor purchases the aircraft and leases it to the lessee, providing 100 percent financing.

4 Incentives To Finance Business Jets

1. Low-cost capital - The Federal Reserve (FR) recently announced a policy change, stating that it would average inflation rates to allow for around a 2% inflation rate before raising interest rates to control inflation. According to the FR, interest rates will remain near zero for several years. Financiers should continue to give customers very low prices in line with the FR action for the near future.
2. Low financial investment is a no-no - Many potential buyers should recognize that, rather than writing a check for a new or used aircraft, they might put their money to better use in their companies, such as capital spending, savings, or, particularly during the pandemic, working capital.
3. Competition between lessors and lenders - To the degree that their respective business models, regulatory constraints, and internal credit policies allow, most aircraft lenders and lessors compete vigorously on interest rates or lease economics to win business. Financiers will, however, expect customers to sign documentation containing strong covenants, defaults, and other restrictive terms on aircraft and business operations, with the exception of the most creditworthy customers.
4. Leasing and loan arrangements that are tailored to your needs - The structure of leases and loans is an important part of the competition among financiers. A lessor may build flexible arrangements with fixed and variable leases, options to buy the aircraft during the lease term or at lease expiration, cancel the lease during the lease term, or renew the lease term at lease expiration to make planning and cost control of aircraft operations easier.

Conclusion

Despite the fact that cash is king for many aircraft customers, up to 70% of prospective business aircraft owners or operators intend to fund their next new aircraft. Anyone interested in purchasing a used aircraft should follow the same guidelines.

These potential buyers will benefit from low interest/rent rates, no or no cash outlay, and the ability to purchase or lease aircraft right away. Any increase in transaction volume this year, prompted by increased funding, would be very welcome for the business aviation industry, and could provide some hope for a better 2021.

At JetLoan Capital, we work to ensure that our clients receive the attention to ensure a seamless, efficient process for financing your aircraft, boat, or yacht. Contact us for your free aircraft or marine financing consultation.